Clarification - annual leave loading and superannuation

Previously, there was some uncertainty as to if superannuation must be paid on annual leave loading (“leave loading”) under Modern Awards. This uncertainty arose from Modern Awards, such as the Electrical, Electronic and Communications Contracting Award 2020, failing to state why this entitlement was paid. Therefore, this line of reasoning continued, leave loading was arguably part of the Ordinary Time Earnings (“OTE”) and superannuation is paid on it. Alternatively, to avoid superannuation payment on leave loading and comply with superannuation legislation, an employer had to demonstrate this entitlement was linked to a lost opportunity to work overtime. 

However, Finance Sector Union of Australia v Commonwealth Bank of Australia [2022] FedCFamC2G 409 (27 July 2022) clarified the above position. In this case, the union alleged that under clause 20 of its 2016 Enterprise Agreement, the Commonwealth Bank was required to pay superannuation on annual leave loading. 

Under this Agreement, an employee was entitled to a 17.5 % loading for any annual leave period. Importantly, this Agreement did not specify the purpose for the annual leave loading. On judgement, Judge Rolf Driver dismissed the union’s application, finding that leave loading did not constitute OTE. On this basis, the Judge found the Commonwealth Bank need not pay superannuation on this entitlement. 

By analogy, this decision can likely be applied to employees covered by the Electrical, Electronic and Communications Contracting Award 2020. Specifically, this decision may be a valid justification for not paying superannuation on annual leave loading. Nevertheless, for completeness, employers should stipulate in policies and/or employment contracts, that annual leave loading paid on top of the employee’s base rate of pay, is for a lost opportunity to work overtime, and is accordingly not subject to superannuation.

Disclaimer: This summary is a guide only and is not legal advice. For further information, call ECA Legal on (08) 6241 6129 or email ecalegal@ecawa.org.au